United Kingdom: Growth resilient as BoE stays on hold – Standard Chartered
Standard Chartered’s Christopher Graham notes that UK growth remained resilient in Q2, with GDP rising 0.4% q/q, driven by private consumption and business investment while government spending dragged. He expects a slowdown in H2, with growth easing to 0.2–0.3% q/q in Q3 and Q4. The bank raises its 2026 growth forecast to 1.3% and still expects the BoE to keep rates on hold this year.
Resilient Q2 but slower H2 ahead
"The UK economy grew 0.4% q/q in Q2, in line with the BBG consensus, but above our expectation of 0.2%. Growth was driven by private consumption (+0.3% q/q) and business investment (+1.7% q/q); government spending was an overall drag (-0.3% q/q). While the Q2 outturn was a slowdown from the 0.6% q/q print recorded in Q1, it demonstrates UK economic resilience given headwinds from higher energy prices and economic uncertainty in the Middle East."
"Moreover, monthly data pointed to 0.3% growth m/m in June, versus the BBG consensus of -0.1%. This appears entirely driven by services activity (+0.4% m/m), likely supported by a combination of warmer weather and the start of the World Cup, while industrial production (-0.2% m/m), manufacturing production (-0.5% m/m) and construction output (-0.1% m/m) all contracted in June."
"We expect a further slowdown in H2, although the resilience demonstrated in Q2 (and the momentum in June) prompts us to raise our full-year growth forecast to 1.3% (from 1.0%). We expect growth to slow to 0.2-0.3% q/q in Q3 and Q4."
"While World Cup effects likely continued to support activity in July, higher household energy prices (which reset higher at the start of Q3) and elevated inflation will act as headwinds to consumption, and uncertainty ahead of the budget on 28 October is likely to weigh on business investment."
"While Q2 growth was higher than the Bank of England’s (BoE’s) expectations (0.3% q/q in its July projections), we think inflation data (which has so far been well behaved) and labour-market data (still soft) are more important inputs to its thinking. With rates currently restrictive, we still expect the BoE keep rates on hold this year."
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